Royal Bank of Scotland

Debate between Rupa Huq and Jon Cruddas

Thursday 5th November 2015 Commons Chamber

[Jon Cruddas]

I will come to the question of demutualisation in a moment. I simply suggest that Government Members read a book called “The New Few” by Ferdinand Mount, who happened to be Margaret Thatcher’s head of policy. He argued for a more resilient capitalism, including a mixed economy in banking provision, with mutuals, local regional banks and a wider distribution of banking products for communities such as mine in east London. Therefore, I do not think that this is necessarily a left-right debate. I argue that this is a live debate on the right, which suggests that simple neutrality or abstention on the motion is not necessarily going with the grain of more innovative thinking across the right of the political spectrum.

[Dr Rupa Huq (Ealing Central and Acton) (Lab)]

My hon. Friend is a renowned economist, but even before we get into the alternative models of banking, does he agree that one does not have to be an economist to see that buying something at one price and then selling it off for next to nothing—at the current market rate, shares are £3.21 each—does not make good economic sense? That from a party that prides itself on its so-called long-term economic plan. It is more like what George Bush senior called voodoo economics.

[Jon Cruddas]

A collective hit of £14 billion on taxpayers does not seem to be good, rigorous or empirically grounded economics, so my hon. Friend is absolutely right.

Let me return to the question of bank deposits. Apart from anything else, the lack of diversity in the UK’s banking system leaves us extremely vulnerable; all our eggs are literally in one basket. If we look at the international evidence on how those different types of bank perform, it quickly becomes clear that the Minister’s claims simply do not stack up.

Let us take shareholder owned banks first. Let us not forget that in 2008 it was shareholder-owned commercial banks that brought the global financial system to its knees. Yes, they were “innovative”—they created some of the most innovative toxic financial instruments the world has ever seen—but much of that innovation was what Adair Turner has termed “socially useless”; it served no real economic purpose except to inflate the profits of the banks that produced them while quietly spreading dangerous levels of risk to every corner of our financial system.

Members do not have to take my word for that. The Parliamentary Commission on Banking Standards concluded that the shareholder model itself had a large part to play in the story:

“Shareholders have incentives to encourage directors to pursue high risk strategies in pursuit of short-term returns... In the run-up to the financial crisis, shareholders failed to control risk-taking in banks, and indeed were criticising some for excessive conservatism.”

In other words, the ownership model to which the Government are so keen to return RBS is the same model that helped to bring the bank down in the first place.